Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 132 IFRS • Income and expenses shall be translated at exchange rates at the dates of the transactions (or an average rate as an approximation) • All resulting exchange differences shall be recognised in other comprehensive income Translation of a foreign operation The results and financial position of a foreign operation follow normal consolidation procedures except that an intragroup monetary asset or liability cannot be eliminated against the corresponding intragroup liability or asset without showing the results of currency fluctuations in the consolidated financial statements. Any exchange difference is recognised in profit or loss unless IAS 21.32 applies in which case it is recognised in other comprehensive income (IAS 21.45). IAS 21.46 provides guidance for when the foreign operation has a different reporting date than the reporting entity. Goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation and shall be translated at the closing rate (IAS 21.47). U.S. GAAP numerous revenues, expenses, gains, and losses are recognized is generally impractical, an appropriately weighted average exchange rate for the period may be used to translate those elements (ASC 830-30-45-3 through 45-5 and ASC 830-10-55-10 through 55-11). If an entity’s functional currency is a foreign currency, translation adjustments result from the process of translating that entity’s financial statements into the reporting currency. Translation adjustments shall not be included in determining net income but shall be reported in other comprehensive income (ASC 830-30-45-12). Translation of a foreign operation Similar to IFRS, normal consolidation procedures apply (ASC 830-10-15-5, and ASC 830-30-45-10 and 45-17). After a business combination accounted for by the purchase method, the amount assigned at the acquisition date to the assets acquired and the liabilities assumed (including goodwill or the gain recognized for a bargain purchase) should be translated in conformity with the requirements of ASC 830. Accumulated translation adjustments attributable to noncontrolling interests should be allocated to and reported as part of the non-controlling interest in the consolidated enterprise (ASC 830-30-45-17). Disposal or partial disposal of a foreign operation An entity may dispose or partially dispose of its interest in a foreign operation through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity (IAS 21.49). On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation recognised in other comprehensive income and accumulated in the separate component of equity shall be reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognised (IAS 21.48). On the partial disposal of a subsidiary that includes a foreign operation, the entity shall re-attribute the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income to the non-controlling interests in that foreign Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the amount attributable to that entity and accumulated in the translation adjustment component of equity shall be removed from the separate component of equity and shall be reported as part of the gain or loss on sale or liquidation of the investment for the period during which the sale or liquidation occurs (ASC 830-30-40-1). Unlike IFRS, U.S. GAAP does not remove any amount from the separate component of equity when there is a partial return of investment to the parent (i.e. dividend). © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 133 IFRS operation. In any other partial disposal of a foreign operation the entity shall reclassify to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income (IAS 21.48C). When a foreign operation that was hedged is disposed of, the amount reclassified to profit or loss as a reclassification adjustment from the foreign currency translation reserve in the consolidated financial statements of the parent in respect of the hedging instrument is the amount that IAS 39.102 requires to be identified. That amount is the cumulative gain or loss on the hedging instrument that was determined to be an effective hedge (IFRIC 16.16-.17). U.S. GAAP Intercompany foreign currency transactions that are of a long-term-investment nature IAS 21 does not provide for the deferral of gains on intercompany currency transactions that are of a longterm-investment nature. Unlike IFRS, U.S. GAAP indicates that gains and losses on intercompany foreign currency transactions that are of a long-term-investment nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise’s financial statements, shall not be included in determining net income but shall be reported in the same manner as translation adjustments (ASC 830-20-35-3). Translation adjustments shall not be included in determining net income but should be reported in other comprehensive income (ASC 830-30-45-12). Tax effects of all exchange differences Gains and losses on foreign currency transactions and exchange differences arising on translating the results and financial position of an entity (including a foreign operation) into a different currency may have tax effects. IAS 12 applies to these tax effects (IAS 21.50). Similar to IFRS whereas ASC 740 applies to exchange differences (ASC 830-20-45-3 and 45-5 and ASC 830-30-45-21). Hyperinflationary economies IAS 29 is applied to the financial statements, including consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy (IAS 29.1). IAS 29 does not establish an absolute rate at which hyperinflation is deemed to arise. IAS 29.3 provides a list of characteristics that might indicate hyperinflation, Unlike IFRS, U.S. GAAP does not have a separate standard addressing highly inflationary economies. However, ASC 830-10-45-11 indicates that the financial statements of a foreign entity in a highly inflationary economy shall be remeasured as if the functional currency were the reporting currency. Accordingly, the financial statements of those entities shall be remeasured into the reporting currency according to the requirements of ASC 830-10-45-17. For purposes of the requirement included in ASC 830-10-45-17, a highly inflationary economy is one that has cumulative inflation of approximately 100 © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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